Regulating Damage Clauses in (Labor) Contracts

Gerd Muehlheusser

Journal of Institutional and Theoretical Economics (JITE), 2007, vol. 163, issue 4, 531-551

Abstract: This paper analyzes the role of damage clauses in labor contracts, using a model in which a worker may want to terminate his current employment relationship and work for another firm. It is shown that the initial parties to a contract have an incentive to stipulate excessive damage clauses, which leads to ex post inefficiencies. This result is due to rent-seeking motives (a) between the contracting parties vis-a-vis third parties and (b) among the contracting parties themselves. Moreover, by imposing an upper bound on the amount of enforceable damages, a regulator can induce a Pareto improvement; in some cases even the first best can be achieved.

JEL-codes: K12 M12 M31 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/regulating- ... 28093245607783242936 (text/html)
Fulltext access is included for subscribers to the printed version.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mhr:jinste:urn:sici:0932-4569(200712)163:4_531:rdcilc_2.0.tx_2-6

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

Access Statistics for this article

Journal of Institutional and Theoretical Economics (JITE) is currently edited by Gerd Mühlheußer and Bayer, Ralph-C

More articles in Journal of Institutional and Theoretical Economics (JITE) from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().